What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 200 added, 146 removed, 525 unchanged (40% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 26,

(In thousands, except per share amounts)

30 unchanged sentences

$ 0.01 par value;

no shares authorized, issued or outstanding at June 27, 2021, compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020

no shares authorized, issued or outstanding at September 26, 2021, compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020

Redeemable noncontrolling interests

1 unchanged sentence

Common stock ($ 0.01 par value per share;

issued 48,937 at June 27, 2021 and 45,288 at December 27, 2020)

issued 48,989 at September 26, 2021 and 45,288 at December 27, 2020)

Additional paid-in capital

1 unchanged sentence

Retained earnings

Treasury stock ( 12,722 shares at June 27, 2021 and 12,743 shares at December 27, 2020, at cost)

Treasury stock ( 12,806 shares at September 26, 2021 and 12,743 shares at December 27, 2020, at cost)

Total stockholders’ deficit

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands, except per share amounts)

21 unchanged sentences

Net income attributable to the Company

Calculation of net (loss) income for earnings per share:

Calculation of net income (loss) for earnings per share:

Net income attributable to the Company

2 unchanged sentences

Net income attributable to participating securities

Net (loss) income attributable to common shareholders

Basic (loss) earnings per common share

Diluted (loss) earnings per common share

Net income (loss) attributable to common shareholders

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

Basic weighted average common shares outstanding

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands)

13 unchanged sentences

Comprehensive income attributable to the Company

(1) Amounts reclassified out of accumulated other comprehensive loss into net interest expense included ($ 1,730 ) and ($ 3,439 ) for the three and six months ended June 27, 2021, respectively, and ( $ 1,372 ) and ( $ 1,702 ) for the three and six months ended June 28, 2020, respectively.

(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $ 388 and $ 771 for the three and six months ended June 27, 2021, respectively, and $ 332 and $ 412 for the three and six months ended June 28, 2020, respectively.

(1) Amounts reclassified out of accumulated other comprehensive loss into net interest expense include ($ 1,644 ) and ($ 5,084 ) for the three and nine months ended September 26, 2021, respectively, and ( $ 1,674 ) and ( $ 3,376 ) for the three and nine months ended September 27, 2020, respectively.

(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $ 368 and $ 1,139 for the three and nine months ended September 26, 2021, respectively, and $ 378 and $ 763 for the three and nine months ended September 27, 2020, respectively.

See accompanying notes.

7 unchanged sentences

Stockholders’

For the three months ended June 27, 2021

Balance at March 28, 2021

For the three months ended September 26, 2021

Balance at June 27, 2021

Net income (1)

Other comprehensive income, net of tax

Repurchase and conversion of Series B Convertible Preferred Stock

Cash dividends on common stock

Cash dividends on preferred stock

Exercise of stock options

4 unchanged sentences

Distributions to noncontrolling interests

Balance at June 27, 2021

For the six months ended June 27, 2021

Balance at September 26, 2021

For the nine months ended September 26, 2021

Balance at December 27, 2020

10 unchanged sentences

Distributions to noncontrolling interests

Balance at June 27, 2021

(1) Net income to the Company for the three and six months ended June 27, 2021 excludes $ 713 and $ 1,500 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At June 27, 2021, the accumulated other comprehensive loss of $ 10,235 was comprised of net unrealized foreign currency translation loss of $ 2,641 and net unrealized loss on the interest rate swap agreements of $ 7,594 .

Balance at September 26, 2021

(1) Net income to the Company for the three and nine months ended September 26, 2021 excludes $ 692 and $ 2,192 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At September 26, 2021, the accumulated other comprehensive loss of $ 9,910 was comprised of net unrealized foreign currency translation loss of $ 3,499 and net unrealized loss on the interest rate swap agreements of $ 6,411 .

See accompanying notes.

7 unchanged sentences

Stockholders’

For the three months ended June 28, 2020

Balance at March 29, 2020

For the three months ended September 27, 2020

Balance at June 28, 2020

Net income (2)

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Cash dividends on common stock

5 unchanged sentences

Distributions to noncontrolling interests

Balance at June 28, 2020

For the six months ended June 28, 2020

Balance at September 27, 2020

For the nine months ended September 27, 2020

Balance at December 29, 2019

10 unchanged sentences

Distributions to noncontrolling interests

Balance at June 28, 2020

Balance at September 27, 2020

(1) As of December 30, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”.

(2) Net income to the Company for the three and six months ended June 28, 2020 excludes $ 707 and $ 883 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At June 28, 2020, the accumulated other comprehensive loss of $ 21,104 was comprised of net unrealized foreign currency translation loss of $ 8,031 and net unrealized loss on the interest rate swap agreements of $ 13,073 .

(2) Net income to the Company for the three and nine months ended September 27, 2020 excludes $ 301 and $ 1,184 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At September 27, 2020, the accumulated other comprehensive loss of $ 18,510 was comprised of net unrealized foreign currency translation loss of $ 6,705 and net unrealized loss on the interest rate swap agreements of $ 11,805 .

See accompanying notes.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 26,

September 27,

(In thousands)

2 unchanged sentences

Adjustments to reconcile net income to net cash provided by operating activities:

(Credit) provision for allowance for credit losses on accounts and notes receivable

Benefit for allowance for credit losses on accounts and notes receivable

Depreciation and amortization

17 unchanged sentences

Financing activities

Repayments of term loan

Proceeds from issuance of senior notes

Repayment of term loan

Net proceeds (repayments) of revolving credit facilities

Debt issuance costs

Proceeds from exercise of stock options

14 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 27, 2021

September 26, 2021

Basis of Presentation

2 unchanged sentences

In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.

Operating results for the three and six months ended June 27, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2021.

Operating results for the three and nine months ended September 26, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2021.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for Papa John’s International, Inc.

3 unchanged sentences

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

Significant items that are subject to such estimates and assumptions include allowance for credit losses on doubtful accounts and notes receivable, intangible assets, contract assets and contract liabilities, including the online customer loyalty program obligation and gift card breakage, right-of-use assets and lease liabilities, insurance reserves and tax reserves.

Significant items that are subject to such estimates and assumptions include allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities, including the online customer loyalty program obligation and gift card breakage, right-of-use assets and lease liabilities, insurance reserves and tax reserves.

Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates.

7 unchanged sentences

Noncontrolling Interests

Papa John’s has four joint venture arrangements in which there are noncontrolling interests held by third parties that include 188 and 192 restaurants at June 27, 2021 and June 28, 2020, respectively.

Papa John’s has four joint venture arrangements in which there are noncontrolling interests held by third parties that include 188 and 192 restaurants at September 26, 2021 and September 27, 2020, respectively.

Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests.

Additionally, disclosures are required to clearly identify and distinguish between the interests of the Company and the interests of the noncontrolling owners, including a disclosure on the face of the Condensed Consolidated Statements of Operations of net income attributable to noncontrolling interests.

Net income attributable to these joint ventures for the three and six months ended June 27, 2021 and June 28, 2020 was as follows (in thousands):

Net income attributable to these joint ventures for the three and nine months ended September 26, 2021 and September 27, 2020 was as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

Papa John’s International, Inc.

27 unchanged sentences

Fair Value Measurements and Disclosures

The Company is required to determine the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.

Fair value is a market-based measurement, not an entity-specific measurement.

The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable.

The carrying value of notes receivable, net of allowances, also approximates fair value.

The fair value of the amounts outstanding under our term debt and revolving credit facility approximate their carrying values due to the variable market-based interest rate (Level 2).

Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following categories:

The Company determines the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.

Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following three categories:

Quoted market prices in active markets for identical assets or liabilities.

1 unchanged sentence

Unobservable inputs that are not corroborated by market data.

Our financial assets and liabilities that were measured at fair value on a recurring basis as of June 27, 2021 and December 27, 2020 are as follows (in thousands):

Fair value is a market-based measurement, not an entity-specific measurement.

Considerable judgment is required to interpret market data to estimate fair value;

accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange.

Our financial assets and liabilities that were measured at fair value on a recurring basis as of September 26, 2021 and December 27, 2020 are as follows:

Fair Value Measurements

June 27, 2021

(in thousands)

September 26, 2021

Financial assets:

10 unchanged sentences

The future cash flows are derived based on the terms of our interest rate swaps, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”).

The carrying value of notes receivable, net of allowances, also approximates fair value.

The Company’s revolving credit facilities and term debt under the Previous Credit Facility approximate carrying value due to their variable market-based interest rate.

The Company’s 3.875 % senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and have the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of September 26, 2021 and December 27, 2020, respectively:

September 26, 2021

December 27, 2020

(in thousands)

3.875 % Senior Notes

Allowance for Credit Losses

7 unchanged sentences

Balance at December 27, 2020

Current period credit for expected credit losses

Current period benefit for expected credit losses

Write-offs charged against the allowance

Recoveries collected

Balance at June 27, 2021

Balance at September 26, 2021

Lessor Operating Leases

We sublease certain retail space to our franchisees in the United Kingdom which are primarily operating leases.

At June 27, 2021, we leased and subleased approximately 400 Papa John’s restaurants to franchisees in the United Kingdom.

At September 26, 2021, we leased and subleased approximately 410 Papa John’s restaurants to franchisees in the United Kingdom.

The initial lease terms on the franchised sites in the United Kingdom are generally 15 years .

1 unchanged sentence

Rental income, primarily derived from properties leased and subleased to franchisees in the United Kingdom, is recognized on a straight-line basis over the respective operating lease terms.

We recognized total sublease income of $ 6.1 million and $ 5.0 million for the six months ended June 27, 2021 and June 28, 2020, respectively.

We recognized total sublease income of $ 9.0 million and $ 7.6 million within Other revenues in the Condensed Consolidated Statements of Operations for the nine months ended September 26, 2021 and September 27, 2020, respectively.

Lease Guarantees

1 unchanged sentence

These leases have varying terms, the latest of which expires in 2036.

As of June 27, 2021, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $ 12.8 million.

As of September 26, 2021, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $ 12.1 million.

This contingent liability is not included in the Condensed Consolidated Balance Sheet as it is not probable to occur.

2 unchanged sentences

Supplemental cash flow information related to leases for the periods reported is as follows:

Six Months Ended

Nine Months Ended

(in thousands)

June 27, 2021

June 28, 2020

September 26, 2021

September 27, 2020

Cash paid for amounts included in the measurement of lease liabilities:

6 unchanged sentences

(a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion.

(b) Includes right-of-use assets of approximately $ 14.3 million in the six-month period ended June 27, 2021 associated with the lease commencement of our Atlanta, Georgia Corporate office.

(b) Includes right-of-use assets of approximately $ 21.8 million for the nine months ended September 26, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office.

Papa John’s Marketing Fund, Inc.

2 unchanged sentences

Assets and liabilities of PJMF, which are restricted in their use, included in the Condensed Consolidated Balance Sheets were as follows (in thousands):

September 26,

Current assets:

16 unchanged sentences

Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify as Deferred revenue on the Condensed Consolidated Balance Sheets.

During the three and six months ended June 27, 2021, the Company recognized $ 9.0 million and $ 18.2 million in revenue, respectively, related to deferred revenue, compared to $ 8.4 million and $ 16.3 million for the three and six months ended June 28, 2020.

During the three and nine months ended September 26, 2021, the Company recognized $ 9.2 million and $ 27.3 million in revenue, respectively, related to deferred revenue, compared to $ 8.4 million and $ 24.7 million for the three and nine months ended September 27, 2020.

The following table includes a breakout of contract liability balances (in thousands):

Contract Liabilities

June 27, 2021

September 26, 2021

December 27, 2020

4 unchanged sentences

Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the incentive agreement.

As of June 27, 2021 and December 27, 2020, the contract assets were approximately $ 5.6 million and $ 5.1 million, respectively.

For the three and six months ended June 27, 2021, revenue was reduced approximately $ 0.6 million and $ 1.4 million,

respectively, for the amortization of contract assets over the applicable contract terms.

As of September 26, 2021 and December 27, 2020, the contract assets were approximately $ 5.6 million and $ 5.1 million, respectively.

For the three and nine months ended September 26, 2021, revenue was reduced approximately $ 0.8 million

and $ 2.2 million, respectively, for the amortization of contract assets over the applicable contract terms.

Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.

11 unchanged sentences

Shares Authorized and Outstanding

The Company has authorized 5.0 million shares of preferred stock (of which none were issued or outstanding at June 27, 2021 and December 27, 2020, respectively) and 100.0 million shares of common stock as of June 27, 2021 and December 27, 2020, respectively.

On May 11, 2021, the Company entered into a Share Repurchase Agreement with certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), pursuant to which (i) the Company repurchased from Starboard 78,387 shares of the Series B Convertible Preferred Stock, par value $ 0.01 per share, of the Company (“Series B Preferred Stock”) and (ii) Starboard converted the remaining 171,613 shares of Series B Preferred Stock that it owned into 3,458,360 shares of the Company’s common stock pursuant to the terms of the Certificate of Designation of the Series B Preferred Stock.

On June 3, 2021, the Company entered into agreements with certain franchisee investors to repurchase 1,000 shares of the outstanding Series B Preferred Stock and convert the remaining 1,530 shares of Series B Preferred Stock into 30,769 shares of common stock.

The Company has authorized 5.0 million shares of preferred stock (of which none were issued or outstanding at September 26, 2021 and December 27, 2020, respectively) and 100.0 million shares of common stock as of September 26, 2021 and December 27, 2020, respectively.

There were 36.2 million shares of the Company’s common stock outstanding at September 26, 2021 compared to 32.5 million shares at December 27, 2020.

During the second quarter of 2021, the Company entered into a Share Repurchase Agreement with certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), pursuant to which (i) the Company repurchased from Starboard 78,387 shares of the Series B Convertible Preferred Stock, par value $ 0.01 per share, of the Company (“Series B Preferred Stock”) and (ii) Starboard converted the remaining 171,613 shares of Series B Preferred Stock that it owned into 3,458,360 shares of the Company’s common stock pursuant to the terms of the Certificate of Designation of the Series B Preferred Stock.

Additionally, the Company entered into agreements with certain franchisee investors to repurchase 1,000 shares of the outstanding Series B Preferred Stock and convert the remaining 1,530 shares of Series B Preferred Stock into 30,769 shares of common stock.

The Company paid Starboard and the franchisee investors aggregate one-time cash payments of $ 188.6 million for the repurchase and conversion of all of the outstanding shares of Series B Preferred Stock.

The excess of the cash payment over the carrying value of the respective Series B Preferred Stock redeemed resulted in $ 109.9 million of dividends on redemption of Series B Convertible Preferred Stock in the Condensed Consolidated Statement of Operations, which reduced net income attributable to common stockholders and also reduced diluted earnings per share by $ 3.15 and $ 3.23 for the three and six months ended June 27, 2021, respectively.

As a result of the repurchase and conversion, there were no shares of Series B Preferred Stock authorized or outstanding at June 27, 2021 compared to 260,000 and 252,530 shares of Series B Preferred Stock authorized and outstanding, respectively, at December 27, 2020.

The Series B Preferred Stock was classified as temporary equity on the Condensed Consolidated Balance Sheets as of December 27, 2020.

Following the repurchase and conversion of the Series B Preferred Stock, there were 36.2 million shares of the Company’s common stock outstanding at June 27, 2021 compared to 32.5 million shares at December 27, 2020.

Diluted earnings per share for the nine months ended September 26, 2021 was reduced by $ 3.14 as a result of this transaction.

On August 3, 2021, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware to eliminate the Series B Preferred Stock.

No shares of Series B Preferred Stock were issued or outstanding following the repurchase and conversion thereof in the second quarter of 2021.

Effective upon filing, the Certificate of Elimination eliminated from the Company’s Amended and Restated Certificate of Incorporation all matters set forth in the Certificate of Designation with respect to the Series B Preferred Stock.

The shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock, par value $ 0.01 per share, of the Company, without designation as to series.

Share Repurchase Program

Our Board of Directors has authorized the repurchase of up to $ 75.0 million of common stock under a share repurchase program that began on November 4, 2020 and is effective through December 26, 2021.

Through June 27, 2021, a total of 116,000 shares with an aggregate cost of $ 10.9 million and an average price of $ 94.24 per share were repurchased under this program.

Through September 26, 2021, a total of approximately 219,000 shares with an aggregate cost of $ 23.3 million and an average price of $ 106.16 per share were repurchased under this program.

Funding for the share repurchase program has been provided through our operating cash flows.

Subsequent to June 27, 2021, we acquired an additional 41,000 shares at an aggregate cost of $ 4.3 million.

Approximately $ 59.8 million remained available under the Company’s share repurchase program as of July 30, 2021.

The timing and volume of share repurchases may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements.

Repurchases under the new program may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate.

Repurchases under the Company’s share repurchase program may be commenced or suspended from time to time at the Company’s discretion without prior notice.

Funding for the share repurchase program will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents.

The Company recorded dividends of approximately $ 20.4 million for the six months ended June 27, 2021 consisting of the following:

Subsequent to September 26, 2021, we acquired an additional 158,000 shares at an aggregate cost of $ 19.8 million and an average price of $ 125.50 per share.

Approximately $ 31.9 million remained available under this share repurchase program as of October 29, 2021.

Subsequent to the end of the third quarter, on October 28, 2021, our Board of Directors approved a new share repurchase program for up to $ 425.0 million of the Company’s common stock, with an indefinite duration.

This represents approximately 9.4 % of the Company’s currently outstanding common stock based on the closing stock price as of October 29, 2021.

The new share repurchase program will initially operate alongside the Company’s existing $ 75.0 million share repurchase authorization, which expires on December 26, 2021.

The timing and volume of share repurchases under the Company’s share repurchase programs may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements.

Repurchases under the programs may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate.

Repurchases under the Company’s share repurchase programs may be commenced or suspended from time to time at the Company’s discretion without prior notice.

Funding for the share repurchase programs will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents.

The Company recorded dividends of approximately $ 33.2 million for the nine months ended September 26, 2021 consisting of the following:

● $ 27.6 million paid to common stockholders ($ 0.80 per share);

2 unchanged sentences

● $ 1.1 million in common stock “pass-through” dividends paid to Series B Preferred Stockholders on an as-converted basis ($ 0.45 per share).

On August 3, 2021, our Board of Directors approved a 55.6 % increase in the Company’s dividend rate per common share, from $ 0.90 on an annual basis to $ 1.40 on an annual basis, and subsequently declared a third quarter dividend of $ 0.35 per common share, of which approximately $ 12.8 million will be paid to common stockholders.

The common share dividend will be paid on August 27, 2021 to stockholders of record as of the close of business on August 16, 2021.

On October 28, 2021, our Board of Directors declared a fourth quarter dividend of $ 0.35 per common share, of which approximately $ 12.8 million will be paid to common stockholders.

The common share dividend will be paid on November 19, 2021 to stockholders of record as of the close of business on November 9, 2021.

The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

(Loss) Earnings Per Share

We compute (loss) earnings per share using the two-class method.

The two-class method requires an earnings allocation formula that determines (loss) earnings per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings.

The Series B Preferred Stock and time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock.

Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net (loss) income attributable to common shareholders.

Additionally, any accretion to the redemption value for the Series B Preferred Stock or cash payments in excess of their respective carrying values upon redemption is treated as a deemed dividend in the two-class earnings per share calculation.

The calculations of basic and diluted (loss) earnings per common share are as follows (in thousands, except per-share data):

Earnings (Loss) Per Share

We compute earnings (loss) per share using the two-class method.

The two-class method requires an earnings allocation formula that determines earnings (loss) per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings.

The shares of Series B Preferred Stock, which were repurchased by the Company or converted into shares of common stock during the second quarter of 2021, and time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock.

Additionally, any accretion to the redemption value for the Series B Preferred Stock or cash payments in excess of their respective carrying values upon redemption was treated as a deemed dividend in the two-class earnings per share calculation.

The calculations of basic and diluted earnings (loss) per common share are as follows (in thousands, except per-share data):

Three Months Ended

Six Months Ended

Basic (loss) earnings per common share

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

Basic earnings (loss) per common share

Net income attributable to the Company

2 unchanged sentences

Net income attributable to participating securities

Net (loss) income attributable to common shareholders

Net income (loss) attributable to common shareholders

Basic weighted average common shares outstanding

Basic (loss) earnings per common share

Diluted (loss) earnings per common share

Net (loss) income attributable to common shareholders

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

Net income (loss) attributable to common shareholders

Weighted average common shares outstanding

1 unchanged sentence

Diluted weighted average common shares outstanding (b)

Diluted (loss) earnings per common share

(a) Excludes 145 and 170 equity awards for the three and six months ended June 28, 2020, respectively, as the effect of including such awards would have been anti-dilutive.

(b) The Company had 252.5 shares of Series B Preferred Stock outstanding at June 28, 2020 ( no ne at June 27, 2021).

Diluted earnings (loss) per common share

(a) Excludes 132 equity awards for the nine months ended September 27, 2020, as the effect of including such awards would have been anti-dilutive.

(b) The Company had 252.5 shares of Series B Preferred Stock outstanding at September 27, 2020 ( no ne at September 26, 2021).

For the fully diluted calculation, the Series B Preferred stock dividends were added back to net income attributable to common shareholders.

The Company then applied the if-converted method to calculate dilution on the Series B Preferred Stock, which resulted in 5.0 million additional common shares for June 28, 2020.

This calculation was anti-dilutive for the June 29, 2020 period and as such was excluded.

The Company then applied the if-converted method to calculate dilution on the Series B Preferred Stock, which resulted in 5.0 million additional common shares for September 27, 2020.

This calculation was anti-dilutive for the September 27, 2020 period and as such was excluded.

Long-term debt, net, consists of the following (in thousands):

September 26,

Outstanding debt

2 unchanged sentences

Total long-term debt, net

The Company has a secured revolving credit facility with available borrowings of $ 400.0 million (the “Revolving Facility”), of which $ 95.0 million and $ 10.0 million was outstanding as of June 27, 2021 and December 27, 2020, respectively, and a secured term loan facility with an outstanding balance of $ 330.0 million and $ 340.0 million as of June 27, 2021 and December 27, 2020, respectively (the “Term Loan Facility” and together with the Revolving Facility, the “PJI Facilities”).

The PJI Facilities mature on August 30, 2022.

The loans under the PJI Facilities accrue interest at a per annum rate equal to, at the Company’s election, either LIBOR plus a margin ranging from 125 to 250 basis points or a base rate (generally determined by a prime rate, federal funds rate or LIBOR plus 1.00%) plus a margin ranging from 25 to 150 basis points.

Our outstanding debt as of September 26, 2021 was $ 425.0 million, which was comprised of $ 400.0 million outstanding under our 3.875 % senior notes due 2029 (the “Notes”) and $ 25.0 million under the PJI Revolving Facility (as defined below).

Including outstanding letters of credit, the remaining availability under the PJI Revolving Facility was approximately $ 572.3 million as of September 26, 2021.

On September 14, 2021, the Company issued $ 400.0 million of Notes which will mature on September 15, 2029.

The Notes are guaranteed by each of the Company’s existing and future domestic restricted subsidiaries that are guarantors or borrowers under the Amended Credit Agreement (as defined below) or other certain indebtedness.

The Notes were offered and sold either to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), or to persons outside the United States under Regulation S of

the Securities Act.

Interest on the Notes will be payable semi-annually in cash in arrears on March 15 and September 15 of each year, commencing on March 15, 2022, at a fixed interest rate of 3.875 % per annum.

In connection with the Notes, the Company recorded $ 7.1 million of debt issuance costs, which are being amortized into net interest expense over the term of the Notes.

The net proceeds from the Notes, together with borrowings under the Amended Credit Agreement (as defined below), were used to repay outstanding revolver and term loan borrowings under the Company’s Previous Credit Agreement (as defined below).

The Company may redeem the Notes, in whole or in part, at any time on or after September 15, 2024 at established redemption prices ranging from 97 to 194 basis points depending on when the Notes are redeemed.

At any time prior to September 15, 2024, the Company may also redeem up to 40 % of the Notes with net cash proceeds of certain equity offerings at a redemption price equal to 103.875 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, excluding the redemption date.

In addition, at any time prior to September 15, 2024, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest and an applicable “make-whole” premium.

The Notes also contain customary redemption provisions related to asset sales and certain change of control transactions.

The Indenture governing the Notes contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Notes and certain provisions related to bankruptcy events.

The Indenture also contains customary negative covenants.

Amended Credit Agreement

Concurrently with the closing of the Notes, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement”) replacing the previous $ 800.0 million credit agreement (“Previous Credit Agreement”).

The Amended Credit Agreement provides for a senior secured revolving credit facility in an aggregate available principal amount of $ 600.0 million (the “PJI Revolving Facility”), of which up to $ 40.0 million is available as swingline loans and up to $ 80.0 million is available as letters of credit.

The PJI Revolving Facility will mature on September 14, 2026.

In connection with the Amended Credit Agreement, the Company recorded $ 2.1 million of debt issuance costs, which are being amortized into net interest expense over the term of the Amended Credit Agreement.

Up to $ 50.0 million of the PJI Revolving Facility may be advanced in certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos.

Additionally, the Amended Credit Agreement includes an accordion feature allowing for a future increase of the PJI Revolving Facility and/or incremental term loans in an aggregate amount of up to $ 500.0 million, subject to certain conditions, including obtaining commitments from one or more new or existing lenders to provide such increased amounts and ongoing compliance with financial covenants.

Loans under the PJI Revolving Facility accrue interest at a per annum rate equal to, at the Company’s election, either a LIBOR rate plus a margin ranging from 1.25 % to 2.00 % or a base rate (generally determined according to the greater of a prime rate, federal funds rate plus 0.50 %, or a LIBOR rate plus 1.00 %) plus a margin ranging from 0.25 % to 1.00 %.

In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the then most recently ended four quarter period (the “Leverage Ratio”).

The Credit Agreement governing the PJI Facilities (the “PJI Credit Agreement”) places certain customary restrictions upon the Company based on its financial covenants.

These include limiting the repurchase of common stock and not increasing the cash dividend above the lesser of $ 0.225 per share per quarter or $ 35 million per

fiscal year if the Company’s leverage ratio is above 3.75 to 1.0.

Quarterly amortization payments are required to be made on the Term Loan Facility in the amount of $ 5.0 million.

Loans outstanding under the PJI Facilities may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect.

Up to $ 35.0 million of the Revolving Facility may be advanced in certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos.

The PJI Credit Agreement contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of the Leverage Ratio and a specified fixed charge coverage ratio.

The PJI Credit Agreement allows for a permitted Leverage Ratio of 4.25 to 1.0, decreasing over time to 4.00 to 1.0 by 2022;

and a fixed charge coverage ratio of 2.50 to 1.0.

We were in compliance with these financial covenants at June 27, 2021.

Under the PJI Credit Agreement, we have the option to increase the Revolving Facility or the Term Loan Facility in an aggregate amount of up to $ 300.0 million, subject to the Leverage Ratio of the Company not exceeding 4.00 to 1.00.

The Company and certain direct and indirect domestic subsidiaries are required to grant a security interest in substantially all of the capital stock and equity interests of their respective domestic and first tier material foreign subsidiaries to secure the obligations owed under the PJI Facilities.

Including outstanding letters of credit, the Company’s remaining availability under the PJI Facilities at June 27, 2021 was approximately $ 259.2 million.

We attempt to minimize interest rate risk exposure by fixing our rate through the utilization of interest rate swaps, which are derivative financial instruments.

Our swaps are entered into with financial institutions that participate in the PJI Credit Agreement.

By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract.

We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our PJI Facilities.

As of June 27, 2021, we have the following interest rate swap agreements with a total notional value of $ 350.0 million:

An unused commitment fee ranging from 18 to 30 basis points per annum, determined according to the Leverage Ratio, applies to the unutilized commitments under the PJI Revolving Facility.

Loans outstanding under the PJI Revolving Facility may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect.

The Amended Credit Agreement also contain provisions specifying alternative interest rate calculations to be used at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.

The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

In addition, the Company

will be subject to the following financial covenants:

(1) a maximum Leverage Ratio of 5.25 to 1.00, subject to the Company’s election to increase the maximum Leverage Ratio by 0.50 to 1.00 in connection with material acquisitions if the Company satisfies certain requirements, and (2) a minimum interest coverage ratio defined as EBITDA plus consolidated rental expense to consolidated interest expense plus consolidated rental expense of 2.00 to 1.00.

We were in compliance with these financial covenants at September 26, 2021.

Obligations under the Amended Credit Agreement are guaranteed by certain direct and indirect material domestic subsidiaries of the Company (the “Guarantors”) and are secured by a security interest in substantially all of the capital stock and equity interests of the Company’s and the Guarantors’ domestic and first tier material foreign subsidiaries.

The Amended Credit Agreement contains customary events of default including, among other things, payment defaults, breach of covenants, cross acceleration to material indebtedness, bankruptcy-related defaults, judgment defaults, and the occurrence of certain change of control events.

The occurrence of an event of default may result in the termination of the PJI Revolving Facility, acceleration of repayment obligations and the exercise of remedies by the Lenders with respect to the subsidiary guarantors.

PJMF Revolving Facility

PJMF has a $ 20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S.

Bank National Association, as lender.

The PJMF Revolving Facility is secured by substantially all assets of PJMF.

The PJMF Revolving Facility matures on September 30, 2022.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month LIBOR plus 1.75 % .

The applicable interest rates on the PJMF Revolving Facility were 1.9 % and 2.7 % for the three and nine months ended September 27, 2020, respectively.

There was no debt outstanding under the PJMF Revolving Facility as of September 26, 2021 or December 27, 2020.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJI Credit Agreement.

Derivative Financial Instruments

As of September 26, 2021, we have the following interest rate swap agreements with a total notional value of $ 350.0 million:

Effective Dates

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January 30, 2018 through August 30, 2022

The gain or loss on the swaps is recognized in Accumulated other comprehensive loss (“AOCL”) and reclassified into earnings as adjustments to interest expense in the same period or periods during which the swaps affect earnings.

Gains or losses on the swaps representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.

In September 2021, we de-designated $ 350.0 million of our interest rate swaps as cash flow hedges following the issuance of the Notes.

For these de-designated hedges, the portion of gains or losses on the derivative instruments previously recognized in accumulated other comprehensive loss (“AOCL”) will be reclassified into earnings as adjustments to interest expense on a straight-line basis over the remaining life of the originally hedged transactions.

The following table provides information on the location and amounts of our swaps in the accompanying condensed consolidated financial statements (in thousands):

Interest Rate Swap Derivatives

September 26,

Balance Sheet Location

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Interest rate swaps for the three months ended:

June 27, 2021

September 26, 2021

Interest expense

June 28, 2020

September 27, 2020

Interest expense

Interest rate swaps for the six months ended:

June 27, 2021

Interest rate swaps for the nine months ended:

September 26, 2021

Interest expense

June 28, 2020

September 27, 2020

Interest expense

The weighted average interest rates on our PJI Facilities, including the impact of the interest rate swap agreements, were 3.2 % for the three- and six-month periods ended June 27, 2021, compared to 3.8 % for the three- and six-month periods ended June 28, 2020, respectively.

Interest paid, including payments made or received under the swaps, was $ 3.6 million and $ 4.0 million for the three months ended June 27, 2021 and June 28, 2020, respectively, and $ 7.1 million and $ 8.1 million for the six months ended June 27, 2021 and June 28, 2020, respectively.

As of June 27, 2021, the portion of the aggregate $ 9.8 million interest rate swap liability that would be reclassified into net interest expense during the next twelve months approximates $ 7.1 million.

PJMF has a $ 20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S.

Bank National Association, as lender.

The PJMF Revolving Facility is secured by substantially all assets of PJMF.

The PJMF Revolving Facility matures on September 30, 2021.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month LIBOR plus 1.75 %.

The applicable interest rates on the PJMF Revolving Facility were 2.3 % and 2.8 % for the three and six months ended June 28, 2020, respectively.

There was no debt outstanding under the PJMF Revolving Facility as of June 27, 2021 or December 27, 2020.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJI Credit Agreement.

Interest paid, including payments made or received under the swaps, was $ 4.1 million and $ 3.9 million for the three months ended September 26, 2021 and September 27, 2020, respectively, and $ 11.1 million and $ 12.0 million for the nine months ended September 26, 2021 and September 27, 2020, respectively.

Commitments and Contingencies

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The Company continues to deny any liability or wrongdoing in this matter and intends to vigorously defend this action.

The Company has no t recorded any liability related to this lawsuit as of June 27, 2021 as it does not believe a loss is probable or reasonably estimable.

The Company has no t recorded any liability related to this lawsuit as of September 26, 2021 as it does not believe a loss is probable or reasonably estimable.

Strategic Corporate Reorganization for Long-term Growth

On September 17, 2020, we announced plans to open an office in Atlanta, Georgia located in Three Ballpark Center at The Battery Atlanta.

The 60,000 square foot modern space will be designed to drive continued menu innovation and optimize integration across marketing, communications, customer experience, operations, human resources, diversity, equity and inclusion, financial planning and analysis, investor relations and development functions.

The space is designed to drive continued menu innovation and optimize integration across marketing, communications, customer experience, operations, human resources, diversity, equity and inclusion, financial planning and analysis, investor relations and development functions.

Our information technology, finance, supply chain, and legal teams will continue to operate in our Louisville, Kentucky office, which remains critical to our success.

We also maintain an office outside of London, United Kingdom, where our international operations are managed.

The opening of the office in Atlanta and related organizational changes are projected to be completed in the fall of 2021.

All affected employees were either offered an opportunity to continue with the organization or were offered a severance package.

As a result, we expect to incur certain one-time corporate reorganization costs of approximately $ 17.0 to $ 20.0 million related to employee severance and transition, recruitment and relocation, and third party and other costs through 2021.

Of these costs, we have cumulatively incurred approximately $ 13.2 million through June 27, 2021 which include $ 8.1 million of employee severance and other employee transition costs, $ 3.3 million of recruiting and professional fees, $ 1.8 million of relocation costs, and $ 0.9 million of other costs, offset by ($ 0.9 ) million of stock-based compensation forfeitures on unvested awards.

Of these costs, we have cumulatively incurred approximately $ 15.3 million through September 26, 2021 which include $ 8.3 million of employee severance and other employee transition costs, $ 4.0 million of recruiting and professional fees, $ 2.9 million of relocation costs, and $ 1.0 million of other costs, offset by ($ 0.9 ) million of stock-based compensation forfeitures on unvested awards.

We record severance as a one-time termination benefit and recognize the expense ratably over the employees’ required future service period.

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All strategic corporate reorganization costs have been recorded in General and administrative expenses on the Condensed Consolidated Statement of Operations.

As of June 27, 2021 and December 27, 2020, the estimate of incurred but unpaid strategic corporate reorganization costs are included in Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

The following table summarizes the activity for the six months ended June 27, 2021:

As of September 26, 2021 and December 27, 2020, the estimate of incurred but unpaid strategic corporate reorganization costs are included in Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

The following table summarizes the activity for the nine months ended September 26, 2021:

September 26,

Employee severance and other employee transition costs

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Total strategic corporate reorganization liability

We expect to recognize additional costs associated with the corporate reorganization in the remainder of 2021 of approximately $ 4.0 to $ 7.0 million, including expenditures related to (i) employee severance and other employee transition costs of $ 0.1 to $ 0.5 million, (ii) relocation and recruiting costs of $ 3.7 million to $ 5.5 million, and (iii) third-party and other costs of $ 0.2 million to $ 1.0 million.

We expect to recognize additional costs associated with the corporate reorganization in the remainder of 2021 of approximately $ 2.0 to $ 5.0 million.

Segment Information

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Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands)

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Reportable Segments

Three Months Ended June 27, 2021

Three Months Ended September 26, 2021

Major Products/Services Lines

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Reportable Segments

Three Months Ended June 28, 2020

Three Months Ended September 27, 2020

Major Products/Services Lines

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Reportable Segments

Six Months Ended June 27, 2021

Nine Months Ended September 26, 2021

Major Products/Services Lines

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Reportable Segments

Six Months Ended June 28, 2020

Nine Months Ended September 27, 2020

Major Products/Services Lines

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Total revenues

(1) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 8.7 million and $ 16.7 million of revenue for the three and six months ended June 27, 2021, respectively, and $ 6.3 million and $ 12.4 million of revenue for the three and six months ended June 28, 2020, respectively, that are part of the international reporting segment.

(1) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 8.5 million and $ 25.1 million of revenue for the three and nine months ended September 26, 2021, respectively, and $ 6.9 million and $ 19.3 million of revenue for the three and nine months ended September 27, 2020, respectively, that are part of the international reporting segment.

These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to operating income but must be reported on a gross basis under accounting requirements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements